Paragon Coin had big plans to become a cannabis bitcoin company and in a 2017 ICO (initial coin offering) the company raised $70 million. Fast forward to today and the company is facing a class action suit claiming that Paragon violated federal securities laws.
United States District Court Judge Jeffrey White granted the plaintiffs’ motion-in-part on federal claims. Yet, he also denied applications for state-level allegations that were filed by several non-California-based investors.
Paragon Coin originally faced a lawsuit filed against the brand and its owners Jessica VerSteeg and her husband Egor Lavrov for allegedly violating Securities law with regards to the Paragon Initial Coin Offering (ICO).
The lawsuit stated that approximately between August 15, 2017, through October 16, 2017, the defendants raised at least $70 million in digital cryptocurrencies by offering and selling unregistered securities in direct violation of the Securities Act. It also stated that on November 2, 2017, Paragon ICO investors received an email updating them that during the Paragon ICO “crowd sale” they had collected 533 BTC and 8,092 ETH— worth approximately $7.3 million and $10.2 million, respectively, as of January 12, 2018. Unfortunately, these amounts did not include any of the cryptocurrencies they collected during the Paragon ICO “presale.”
Capital For Real Estate
At the time, the plaintiff was upset that some of the money raised was being used to acquire real estate even though it was stated that it would be a goal. In Paragon’s white paper it said, “[t]he lion’s share of the token crowdsale [sic] proceeds will be spent on real-estate acquisition.” The plaintiff expected that its investment would increase in value and now wants to be repaid what was invested. So, how much did Davy invest?
Plaintiff invested in the Paragon ICO on September 21, 2017, September 23, 2017,
September 28, 2017, September 30, 2017, October 3, 2017, and October 15, 2017, by transmitting 0.04095 BTC, 0.03975 BTC, 0.57855 ETH, 0.0231 BTC, 0.03495 BTC, and 0.04579484 BTC, respectively, to Defendants.
Paragon Settles in 2018
Paragon did settle in 2018 when the SEC said that Paragon raised approximately $12 million worth of digital assets to develop and implement its business plan to add blockchain technology to the cannabis industry and work toward legalization of cannabis. The SEC statement wrote that Paragon did not register its ICO pursuant to the federal securities laws, nor did it qualify for an exemption to the registration requirements.
Paragon’s Headaches Continue
Even though Paragon settled with the SEC, the investors are still upset as they apparently haven’t received anything. However, Judge White notes that the lawsuit alludes to the company selling the tokens over the Internet. The judge added, “Plaintiffs concede there may be class members in all 50 states and concede that laws governing the state law claims at issue differ among jurisdictions in such a way that a true conflict exists.”
Cannabis Law Report said that, “While the suit argues that ParagonCoin claimed to have issued PRG from its headquarters in California, Judge White noted that “the ICO giving rise to plaintiffs’ claims and purchases of PRG tokens were conducted over the internet.”
“Plaintiffs concede there may be class members in all 50 states and concede that laws governing the state law claim at issue differ among jurisdictions in such a way that a true conflict exists,” the judge added.